Currency substitution under finance constraints

Russell S. Boyer*, Geoffrey H. Kingston

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)

Abstract

The perfect-foresight continuous-time couterpart of Lucas and stokey's cash-in-advance model is generalized to the case of two currencies. The money demand function for eac currency has as arguments the endowments of goods associated with each denomination. Various monetary shocks are investigated including permanent and temporary changes in levels and growth rates. It is shown that substitution can be an important factor in explaining: the possible negative transmission of inflation, the amount of volatility of exchange rates, and the degree tp which exchange rate movements approximate a random walk.

Original languageEnglish
Pages (from-to)235-250
Number of pages16
JournalJournal of International Money and Finance
Volume6
Issue number3
DOIs
Publication statusPublished - 1987
Externally publishedYes

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